Hospital Chain to Drop Units

In another attempt to shore up its sagging psychiatric care division, National Medical Enterprises said Thursday that it will dispose of a number of the group’s 88 hospitals and substance abuse treatment centers.

As a result, the Santa Monica-based company said it would take a pretax write-off of about $250 million for the fourth quarter and fiscal year ending May 31.

National Medical, which also owns and operates acute care hospitals and physical rehabilitation facilities, has been buffeted for months by allegations of fraud and unethical marketing at some of its psychiatric hospitals. The division has also suffered financially because of tightfisted reimbursement policies imposed by insurers and employers who pay most of the bills for psychiatric care.

NME officials said the decision to close, sell or convert the hospitals and treatment centers is a further step toward resolving the problems that have emerged in the psychiatric division.

The company declined to specify the number of facilities to be disposed of, but spokesman David Olson said it would be more than 10 but less than half.

“We need to put our recent problems in this division behind us, and move quickly and decisively to structure our operations for present and future market realities,” Richard K. Eamer, NME’s chairman and chief executive, said in a prepared statement.

The company had announced in December that it was shifting control from Washington, D.C., to Santa Monica of its psychiatric and substance abuse operations. National Medical replaced the director of its Psychiatric Institutes of America chain in October, saying a “new start” was needed.

Ongoing investigations of its practices are being conducted by the Florida attorney general’s office, the New Jersey Insurance Department and the Texas attorney general’s office.

Gray McBride, an attorney general’s spokesman in Austin, said that National Medical has offered to propose a settlement that may include internal “structural reform,” ongoing monitoring by state authorities and payment of fines and restitution to alleged victims.

Olson said Thursday that the firm has completed an “exhaustive internal audit” and a review of “all policies and procedures.”

A list of facilities to be disposed of would be made public in July, Olson said. The cutbacks will cause undetermined “net reductions” of staff at National Medical, which has operations in 29 states, he added.

The company’s psychiatric and substance care centers are mostly concentrated in Texas, Florida and California.

Despite the planned disposals, Olson said that NME would remain among the top two private providers of psychiatric care, along with Laguna Hills-based Community Psychiatric Centers.

Securities analysts said that the closures and the $250-million write-off are attributable to a number of factors impinging on care providers.

In addition to news reports of unscrupulous admissions practices in the industry, insurers are negotiating more vigorously for lower fees and are recommending shorter hospital stays and a shift to outpatient treatment for depression and drug and alcohol abuse.

“It’s caused the psychiatric (care) market to crater,” said Randall Huyser, an analyst in San Francisco with Furman Selz Inc.

National Medical’s stock rose 25 cents to $14.50 on the New York Stock Exchange in trading Thursday. The stock traded as high as $25.875 last year.

David F. Saks, an analyst with Wedbush Morgan in Manhattan, said that National Medical, once a Wall Street favorite, has ridden the roller coaster of the psychiatric-care market. Saks described the company’s announcement of closures and the $250-million write-off as “disappointing,” but added: “Writing off and closing down (some facilities) is probably the right thing to do. So it’s a full circle.”